Humana Retains TRICARE Contract After Lengthy Protest

by: Matthew Potter
February 28, 2011

Category: Business Line, Companies, Congress, Contract Additions, Contract Awards, Department of Defense, Events, Federal Budget Process, logistics, medicine, Services | RSS 2.0

One of the largest and fastest growing costs that faces the U.S. Department of Defense is medical care. It must not only provide care for its current active duty members but also their families and also retirees. Due to a combination of overall health inflation, that most members have families and the large number of troops receiving injuries and wounds this part of the defense budget is eating up more and more funds to the point where Secretary of Defense Robert Gates has proposed raising premiums and co-pays.

The primary tool used to manage this health care program is called TRICARE. It is similar to a HMO and relies on contracts with different health insurance companies. The nation is divided into regions and a contract is awarded for each one. Due to the size of the program the contracts are in a range of several billion dollars a year.

Two years ago the Department awarded a series of new contracts to manage the different regions. One of these was to United Health Group (UNH) for the Southern Region but the losing incumbent, Humana (UUM), protested and it was sustained. DoD let Humana bridge while it figured out whether to have a new contest or address the protest some other way.

Last week it was decided to award Humana the full five year contract for the region. This contract could be worth up to $23 billion if all options are exercised and is a major coup for the company. At the time of the protest it looked like it would be out of the TRICARE business completely and would have to make up the lost revenue some other way. Now they are comfortably ensconced until 2016 which will give them some breathing room as DoD addresses its health costs.

There is no doubt that the military must look at its total personnel costs. They are the biggest part of the budget and if there is no growth in available defense dollars as expected then to free up money for investment in hardware and research these costs will have to be reduced. One of the easiest ways is to cut the number of active duty forces. In the 2012 budget Secretary Gates has done this with planned reductions to the size of the Army and Marine Corps who have grown the most since 2001. Of course at a time when troops are engaged still in Iraq and Afghanistan it will be hard for Congress to agree to this.

Another option which he has also proposed is transferring more of the costs of health care to the employee as so many companies have done. This is also unpopular as military members are not the highest paid people and in the past free or low cost health care has been part of their benefits. This while saving some money may cause a quicker increase in pay to make up for the new costs and thus not really saving money.

The U.S. defense budget faces a great deal of pressure to be more efficient. Health care is just one area that may see major changes due to this.

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